Freemelt Holding AB (publ) (FREEM) Earnings Call Transcript & Summary

[Audio Gap] and also robust regional supply chains. And we see this most clearly infusion and defense where geopolitics, more energy investments and the drive for regional manufacturing are reshaping this industry. And this plays directly to our strategy. As we mentioned before as well, we have built a hybrid business model, which means that we sell machines to clients such as med tech and we offer to manufacture qualified parts for customers in areas like defense, fusion, for instance. If you take MedTech, we continue our work during the quarter with some of the world's leading OEMs with intention to become a productivity partner by providing our industrial machine email for share production purposes. And MedTech, as we also mentioned several times, is the segment where additive manufacturing is already well established. In defense, we're moving from more feasibility studies towards more proof of concepts and where [indiscernible] that follow-on order during the quarter. And after the period, we were also granted Binova funding. And infusion, we are building a strong position, especially regarding manufacturing capabilities of the material tungsten, which is extremely difficult to manufacture. And we got an order from TAE Technologies and also a new alliance, which I'll come back to in a moment. Commercially, I think the quarter was good across all 3 of the regions. If we start with the U.S., we took a very important step with an order from Intelis for 2e-MELT machines and with an option for more as well. This is our first industrial establishment in the U.S. market, and this is a market we have worked patiently to open as well. And I think it's worth mentioning that there is an extreme focus and also attention in the U.S. to reestablish an advanced manufacturing infrastructure for metal components in general, but specifically for aerospace, space and defense. And I think you can almost daily now hear about the low inventory levels of ammunition such as cruise missions and the urgent need to ramp up. If you look into [indiscernible], they are 1 of these type of companies now where the U.S. government and industrial partners like Lockheed Martin and Bugarin are funding to establish a manufacturing ecosystem in strategic areas across the countries. So I think here more to come. In China, our partner, [indiscernible], placed an additional order of the industrial machine email and Europe is increasingly our gateway when it comes to Fusion. And where we had the most recent letter of intent with Proximo Fusion and also our Alpha Alliance membership. So all the 3 regions are moving in a similar kind of direction. I know that we have raised Fusion several times already in other webcast and also investor forums, but Fusion still deserves this attention. because this is where a lot is happening behind the scenes. If we zoom in on this quarter, we secured an order from TAE Technologies, which is a U.S. company and also actually one of the most established private fusion companies in the world. And our focus in this collaboration is again tongues and components. For me, this is just another confirmation regarding our position as a company and our manufacturing capabilities of high-quality tons in components with the best material properties. After the period, we took another important step and we signed a letter of intent with one of the best funded private fusion companies, Proxima Fusion. And we also joined the Alfa Alliance, which is an industrial ecosystem set up to accelerate the next generation of Fusion power plants. And lastly, regarding Fusion. And I think the point I really want you to take away from this, let's say, call it, fusion deep dive session. Our application development is scaling towards high-volume manufacturing of qualified parts, and we are already bidding in tenders for tanks and components. It is still early but the direction is clear. I mean Fusion is moving from a prototype manufacturing to high-volume manufacturing needs. And we, as a company, intend to be a key supplier of parts that market will need. And this is also why we, after the quarter, have opened a position ahead of manufacturing operations really to establish the manufacturing capabilities for these extreme materials, such as tungsten. So we are ready to act and deliver according to the expectations when demand is being materialized. And before I hand over to Martin, so I would like to spend a moment on defense and also Saab. As I'm really proud of trust that Saab is demonstrating as they keep supporting treatment in various projects and repetitive business engagements. We started our first business engagement we saw back in 2024. And since then, they have invested time and also engineering alongside us. And during the quarter, we successfully transitioned from Phase I into Phase II and in one of the ongoing projects, which started back in 2024. And this, of course, was very well received by both parties. And I think another testament of a good collaboration also after the period where we were granted Binova funding for critical materials together with SAB and also other strong partners like Hitachi Energy, Rise, Lean Shopping University, which we, as a company, very much is looking forward to kick off as well. So that was the commercial and also strategic picture for the quarter. So with that said, I'll hand over to Martin to take you through the financials more in detail. So Martin, please?

Thank you, Daniel. So if we start with orders and sales and top line, we had a record order intake, SEK 22.2 million in the quarter. That's up 11% year-on-year, leaving an order book of SEK 25.6 million. The order book is more or less flat compared to a year ago, and it represents the backlog. So basically, orders received, but not yet booked in the income statement. If we turn to sales, we had SEK 9 million of net sales in the second quarter. This represents mainly 2 machine deliveries and it's down 53% compared to last year. same quarter last year. And same quarter last year was, as you might remember, a record quarter in terms of sales. The composition was 72% machinery sales booked in the quarter compared to 76%, which we've seen in the last 12 months. We had 19% in aftermarket and 9% in projects and other income. If we then turn to the operating expenses, we had controlled spending in the quarter. The operating expenses were lower compared to the first quarter, but also compared to the same quarter last year. The total was SEK 37.5 billion to compare with SEK 40 million in the first quarter and SEK 46.8 million in the same quarter last year. So breaking down then, excluding trade goods and depreciation, we had personnel costs of SEK 11 million, which is flat compared to last year. And we had SEK 6.9 million in other external costs, which is sharply down compared to the same period last quarter. Turning to cash and funding. We -- as Daniel mentioned, we had proceeds from the exercise of a warrant. So after the financing costs -- or the associated costs, sorry, we had SEK 33 million coming into the bank. We had an operating cash flow which was negative SEK 40 million, and it was then negatively impacted by an inventory buildup and also an increase in receivables. The full cash flow was SEK 14.1 million in the quarter, which leaves cash at bank of SEK 41.6 million end of June. Turning to the balance sheet. We kept investing in our patent portfolio and also in our technology, SEK 5 million in the quarter. And as I just mentioned, we also built inventory up SEK 7.7 million compared to Q1. So that's 84% up, and that's basically to meet the upcoming demand and to deliver on the order book of SEK 25.6 million. We also have -- every quarter, we have had goodwill depreciation of SEK 11.9 million impacting our P&L. We only have SEK 10.8 million remaining in the balance, which means it will be completely depreciated in the third quarter. And in the fourth quarter onwards, we will see a significant positive P&L impact when these -- this depreciation no longer affects our P&L.

Okay. Thank you, Martin. Let's wrap up first half of 2026. So again, the world is changing quickly, and we are exposed to the geopolitical tensions, which actually comes with rising investments for instance, in energy and then also defense. And also across industries, there is a clear growing pull towards regional manufacturing, supply resilience and extreme materials and also qualified parts. And this is exactly what plays directly to our strength and our focus as well. And I think it's important to reemphasize on what I've said many times before. I mean, for years, much of our most important work has happened behind the scenes in such as materials development, application development in deepening customer collaborations and in advancing projects towards 0 production and especially in the area of tongs and components where we have a very strong position. And that strategic groundwork is exactly what position us today as a supplier in the ecosystem for extreme materials and critical applications. So the market is now moving our way, and we have been building towards it along as well. So this is now the foundation for the next chapter of pre-melt story, which we will continue to clarify and also demonstrate as we go. So with that said, thanks for your attention, and let's open up for some questions.

We'll now open up for a Q&A session, where the first question is, you have a new open position for Head of Manufacturing operations. Does this new position imply Fremont will soon in 6 to 12 months, receive orders on manufacturing components.

I can answer that one. Yes, I mean, as I said earlier today that we are already bidding on tenders for manufacturing of components. And of course, I mean, we expect to be successful in some of these, let's say, tenders as well. So this is why we now also must have someone in place, so we can also then establish the operation to manage the expectations on deliveries as well.

Yes. Moving on. You have an order backlog of SEK 25.6 million. How much of this do you expect to recognize as revenue in Q3 and Q4? And where is the typical lead time from order placement to revenue recognition for your machine orders.

Right. So as implied in the question, there is a lead time. So from the purchase order to installation of machines, which is the point where we recognize net sales in the P&L is typically 3, 4 months, but it's also dependent on when the customer decides that they want the machine. It could be that they, for some reason, want it at a later point in time. For example, if the floor space is not ready or whatever. But 3, 4 months would be the typical from all to recognition in the income statement. When it comes to the order backlog and how much we expect for Q3 and Q4. So I would expect the majority to be recognized in the second half of this year. But the order backlog also includes project revenues, which are for longer projects where we recognize the revenue over time. And there's also a part which is machine rentals, which is also then recognized over the period of the rental contract.

Order intake amounted to SEK 22.2 million, while revenue was SEK 9 million. is the significant difference primarily as a result of the normal lead time between orders and deliveries or are the currently capacity constraints that prevent the order backlog from being converted into revenue more quickly.

Okay. So I can take this one as well. Like I said, it is the normal lead time between orders and deliveries. So this is certainly true. And we do need to -- or we are ramping up our machine build. That's what we see in the inventory buildup. So we're building more machines because we have the record order intake. We're building more machines, and we need to scale up capacity at our suppliers can field to meet the current demand. But we don't see any constraints, but we are scaling up.

Yes. Moving on. As far as you know, to produce the plasma facing tiles in [indiscernible], according to the specification from IT or with a female machine be required for this? Or are the competitors with -- or are there competitors with comparable capabilities?

When it comes to -- I think when it comes to Fusion and such, regardless of if it's each or not, I mean it's still in development. And I think also here, I think we mentioned in some other forms as well that I mean, we, as a company and our technology, we have worked a lot to educate the market over the last couple of years. When it comes to defining specifications for fusion reactors and support, that has also been defined since some years back as well, which also have been done, let's say, set for other, let's say, specification based on other, let's say, manufacturing technologies as they might not have been aware of E-PBF and Freemelt technology and so forth. So what we have been doing now in those different kind of projects when it comes to Fusion, I mean, we are trying, of course, I mean, to demonstrate the capabilities and also, of course, influence the, let's say, the specifications of the -- in this case, I think the question was about plasma facing tiles towards our technology. And I think also what has been evident and also why we are pretty much exposed now to a lot of the different Fusion products around the world is that now these companies start to realize that additive manufacturing and Freemelt ONE can actually improve the specification to improve the performance of the materials. So we definitely do everything we can to influence that specification will be updated and, of course, I mean, based on our technology. And that said, when it comes to E-PBF, and there are other companies providing E-PBF solutions as well. But I think it's important to consider here as well. that technology is 1one thing, then it's another thing to develop, if you call it, the recipes. So if you take tungsten and the material processes and and so forth, that's something that we, as a company, has started many years back, and I think that's also why we have established a really strong position. And this position, of course, I mean, we intend now to try to really capitalize on as well when the volumes of manufacturing of those times are being materialized. So long answer to your question, but I hope in the end it was some sort of answer on the question anyway.

Moving on. Based on the current cash position and cash burn, it appears that your existing liquidity may not be sufficient beyond Q1 2027. How do you plan to address the financing needs if the business has not yet reached a more self-sustaining level by them.